So he paid you nothing and he gets the tax deduction for charitable giving, which makes him look like a saint.You could have pressed the criminal charges.

(Source: Gordon James Realty https://www.gordonjamesrealty.com/resources/knowledge-hub/be...)2.Tax Benefits: Leasing to your LLC allows you to charge rent, creating deductible business expenses.

I don't think you can claim home office deduction for W2 income.

Will they lose their ability to deduct bonus depreciation against their regular 9-5 income for all future years?

Since you will not be renting the unit the entire year, I believe this will affect your taxes by reducing your deductions.

Even with the deductible I was still out $15-20K all in - water gets everywhere and destroys/damages everything along the way.

Thats pretty much exactly what im asking however I don't see why there would be any issue splitting the down payment and mortgage of a 4-unit multi family with someone else especially when you can both realize the full sec 121 benefit, the mortgage and property tax deductions, ect. 

With retirement, you will have more problems getting a mortgage.You do pay a lot of money in interest over the course of your loan, but that should be tax deductible (it is in Canada for rentals). 

This all comes down to how you're structured, how the flip cost were accounted for, if there is a partner (you mentioned "we").If it is an S Corporation and you "distribute" or "sell" the property to yourself, if there is any loss on value, which probably there isn't, know it most likely won't be deductible if it's a related party transaction.  

We will be showing material participation so that we can deduct from our W2 employment.